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Yield curve steeper, rate cut bets unmoved by inflation gain


Reuters


By Kate Duguid

NEW YORK, July 12 (Reuters) - The U.S. yield curve was slightly steeper on Friday, with yields largely unmoved by stronger-than-expected producer price data as market expectations of an interest rate cut this month held firm.

U.S. producer prices rose slightly in June even as the cost of energy and other goods dropped for a second straight month, beating economists' expectations that prices would be unchanged. The Labor Department report comes on the heels of strong consumer price data published on Thursday, suggesting overall inflation could continue to rise moderately despite the gains in consumer prices.

"The trend is what the (Fed) committee wants to see. But in a week where we heard Chairman Powell basically say that the very strong labor market data was a positive print and that's it, one individual dataset will not sway or set the committee's outlook going forward," said Michael Lorizio, senior fixed income trader at Manulife Investment Management. "You probably have to keep that in mind looking at the inflation data over yesterday and today."

Fed Chairman Jerome Powell, in testimony to Congress on Wednesday, set the stage for a rate cut this month, focusing particularly on the threat the U.S.-China trade war poses to the economy while highlighting broader global weakness. Powell downplayed a strong June jobs report and dismissed claims that the U.S. labor market is hot.

The Fed's policy-setting committee will next meet on July 30-31.

The two-year Treasury note yield , which reflects market sentiment about changes in interest rate policy, was down about a basis point to 1.843%. The benchmark 10-year note yield fell less than the 2-year, down half a basis point to 2.115%. The 30-year bond yield was up half a basis point to 2.644%.

Expectations of a 50-basis-point interest-rate cut in July rose modestly, to 23.5% from 19.9% on Thursday, according to CME Group's FedWatch Tool. A 25-point cut has been fully priced in by the market.

Friday, July 12, at 1435 EDT (1835 GMT):

Price

US T BONDS SEP/d

153-18/32

1/32

10YR TNotes SE/d

127-16/256

3/32

Price

Current Yield %

Net Change (bps)

Three-month bills

2.105

2.1451

-0.012

Six-month bills

2.0225

2.077

-0.006

Two-year note

99-148/256

1.8451

-0.007

Three-year note

99-202/256

1.8226

-0.010

Five-year note

99-116/256

1.8659

-0.010

Seven-year note

99-86/256

1.9776

-0.010

10-year note

102-76/256

2.1149

-0.005

30-year bond

104-188/256

2.6445

0.006

YIELD CURVE

Last (bps)

Net Change (bps)

10-year vs 2-year yield

26.80

-0.40

30-year vs 5-year yield

77.80

1.35

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

3.50

-0.75

U.S. 3-year dollar swap spread

1.00

-0.25

U.S. 5-year dollar swap spread

-1.25

-0.50

U.S. 10-year dollar swap spread

-6.25

-1.00

U.S. 30-year dollar swap spread

-34.75

-1.75






This article appears in: Politics , Stocks , World Markets , Economy



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